HSCA: GAO audit finds GPOs Good to Go

Numerous federal agencies have the authority to oversee the conduct and business practices of group purchasing organizations, but they seldom have had reason to exercise their oversight authority or enforce laws governing industry behavior. That’s the conclusion of the General Accountability Office’s (GAO) latest report concerning the healthcare group purchasing industry, which was made public April 30. The report, requested by Senators Kohl (D-Wisc.), Grassley (R-Iowa) and Coburn (R-Okla.), describes the respective oversight roles of the U.S. Department of Health and Human Services (HHS), Department of Justice (DOJ) and the Federal Trade Commission (FTC) related to GPOs. It also includes a discussion of the role of GPO self-regulation, through the industry’s voluntary Health Industry Group Purchasing Industry Initiative (HGPII).

“Federal spending for health care services provided through Medicare and Medicaid in fiscal year 2010 totaled $793.2 billion – an increase from $514.3 billion in 2005,” notes the report. “Federal spending for health care services is expected to continue to rise.” The report affirms proactive steps taken by GPOs to increase transparency and accountability in the healthcare supply chain and outlines the following HGPII requirements of each of its member GPOs:

Adhere to a written code of conduct that includes provisions on conflicts of interest, ethical standards and sound business practices and conduct.

Post on a public website an annual accountability questionnaire that includes standards for open, competitive contracting policies on sole-source, dual-source and multi-source contracts, and include information on vendor fees.

Ensure that the publicly available questionnaire is signed and attested to by the company’s chief executive officers.

Attend an annual Best Practices Forum.

Agency officials told GAO that HHS-OIG has issued one advisory opinion regarding GPO arrangements or activities since 2004. “This advisory opinion, issued in March 2012, stated that although the proposed GPO arrangement could potentially generate prohibited remuneration under the Anti-Kickback statute, HHS-OIG would not impose administrative sanctions on the GPO because the proposed arrangement presents an acceptably low risk of fraud and abuse in connection with the Anti-Kickback statute.” Under the Medicare statute:

GPOs’ provider owners and customers are required to account for this revenue and any they receive from vendors on their Medicare cost reports.

A GPO must have a written agreement with its customers either stating that the contract administrative fees are to be 3 percent or less of the purchase price, or specifying the amount or maximum amount that each vendor will pay.

GPOs must disclose in writing to each customer, at least annually, and to the Secretary of HHS upon request, the amount of contract administrative fees received from each vendor with respect to purchases made by or on behalf of the customer.

The GAO report notes that “FTC officials told us that while the agency has investigated GPOs to determine whether their behavior was anticompetitive, the agency has not taken any enforcement action against a GPO since 2004.” It also mentions that “FTC officials noted that their agency generally receives one complaint each year about GPOs.”

The GAO report is the latest in a series of governmental analyses of the GPO model, and joins a chorus that includes previous reviews conducted by the DOJ, FTC, U.S. Supreme Court, 8th Circuit Court of Appeals, academia and virtually all of America’s 5,000+ hospitals. In other words, the GAO report concluded that GPOs “are good to go!”